Numerical targets for cutting
subsidies and protectionCountries
reductions in agricultural subsidies and protection agreed in the Uruguay Round

Developed
6 yrs
19952000

Developing
10 yrs
19952004

Tariffs

ave.
cut, all ag. goods

36%

24%

min. cut
per product

15%

-10%

Domestic
support

Cuts for
sector (AMS)

20%

13%

Exports

value of
subsidies (outlays)

36%

24%

subsidized
quantities

21%

14%

NOTE:
Least-developed countries do not have to make commitments to reduce tariffs or subsidies.
The base level for tariff cuts was the bound rate before 1 Jan 95; or, for
unbound tariffs, the actual rate charged in Sept 86, when the Uruguay Round began.

Only the
figures for cutting export subsidies appear in the agreement. The other figures were
targets used to calculate countries legally binding schedules of
commitments.

Introduction

Up to 1995, GATT rules
were largely ineffective in disciplining agricultural trade. In particular, export
subsidies came to dominate many areas of world agricultural trade, while the disciplines
on import restrictions were often flouted. The 19861994 Uruguay Round went a long
way towards changing all that.

The trade is now
firmly within the multilateral trading system. The Agriculture Agreement, together with
individual countries commitments to reduce export subsidies, domestic support and
import barriers on agricultural products make up a comprehensive programme for reforming
agricultural trade.

The reform programme
struck a balance between agricultural trade liberalization and governments desire to
pursue legitimate agricultural policy goals, including non-trade concerns (see below).
The reform brought all agricultural products (as listed in the agreement) under
multilateral disciplines, including tariff bindings  WTO members have
bound themselves to maximum tariffs on nearly all agricultural products, while many
industrial tariffs remain unbound.

Continuing reductions: the objective

Further substantial
reductions in tariffs, domestic support and export subsidies can be expected to be the
main focus of the negotiations. In addition, some countries say an important objective of
the new negotiations should be to bring agricultural trade under the same rules and
disciplines as trade in other goods. Some others, mainly developed countries, reject the
idea for a number of reasons (for example, see non-trade concerns and
multifunctionality, below).

Market access: tariffs and tariff
quotas

Nowadays, all
agricultural products are protected only by tariffs. All non-tariff barriers had to be
eliminated or converted to tariffs as a result of the Uruguay Round (the conversion is
known as tariffication). In some cases, the calculated equivalent tariff was
too high to allow any real opportunity for imports. So a system of tariff-rate quotas was
created to maintain existing import access levels, and to provide minimum access
opportunities. This means lower tariffs within the quotas, and higher rates for quantities
outside the quotas.

The discussion since
the Uruguay Round has focused broadly on two issues: the high levels of tariffs outside
the quotas (with some countries pressing for larger cuts on the higher tariffs), and the
quotas themselves  their size and the way they have been administered.

Quota administration
is a technical subject, but it has a real impact on trade  on whether a product
exported from one country can gain access to the market of another country at the lower,
within-quota tariff.

Methods used for
giving exporters access to quotas include first-come, first-served allocations, import
licensing according to historical shares and other criteria, administering through state
trading enterprise, bilateral agreements, and auctioning. Exporters are sometimes
concerned that their ability to take advantage of tariff quotas can be handicapped because
of the way the quotas are administered.

Each method has
advantages and disadvantages, and many WTO members acknowledge that it can be difficult to
say conclusively whether one method is better than another. Several countries want the
negotiations to deal with tariff quotas: to replace them with low tariffs, to increase
their size, or to sort out what they consider to be restricting and non-transparent
allocation methods.

Market access: special agricultural
safeguards

Safeguards are
contingency restrictions on imports taken temporarily to deal with special circumstances
such as a surge in imports. They normally come under the Safeguards Agreement, but the
Agriculture Agreement has special provisions (Article 5) on safeguards.

The special safeguards
provisions for agriculture differ from normal safeguards (see details in Trading
into the Future, pages 3132). In agriculture, unlike with normal
safeguards:

higher safeguards
duties can be triggered automatically when import volumes rise above a certain level, or
if prices fall below a certain level; and

it is not necessary to
demonstrate that serious injury is being caused to the domestic industry.

The special
agricultural safeguard can only be used on products that were tariffied, but not on
imports within the tariff quotas, and only if the government reserved the right to do so
in its schedule of commitments on agriculture.

Proposals for the
negotiations range from continuing with the provision in its current form, to its
abolition, or its revision to prevent its use on products from developing countries.
However, the right to use the special agricultural safeguard would lapse if there is no
agreement in the negotiations after Seattle to continue the reform process
initiated in the Uruguay Round.

Domestic support

In WTO terminology,
subsidies in general are identified by boxes which are given the colours of
traffic lights: green (permitted), amber (slow down  i.e. be reduced), red
(forbidden). In agriculture, things are, as usual, more complicated. The Agriculture
Agreement has no red box, but there is a blue box for certain types of subsidies, and
exemptions for developing countries (sometimes called an S&D box).

The
amber box

For agriculture, all
subsidies and other domestic support measures considered to distort production and trade
(with some exceptions) fall into the amber box. The total value of these measures must be
reduced.

The
green box

In order to qualify
for the green box, a subsidy must not distort trade, or at most cause minimal
distortion. They have to be government-funded (not by charging consumers higher prices)
and must not involve price support. They tend to be programmes that are not directed at
particular products, and include direct income supports for farmers that are not related
to (are "decoupled" from) production. Green box subsidies are
therefore allowed without limits, provided they comply with relevant criteria (for
details, see Article 6 and Annex 2 of the Agriculture Agreement).

Some countries say
they would like to review the domestic subsidies listed in the green box because they
believe that some of these, in certain circumstances, could have an influence on
production or prices. Some others, including some major players advocating general
agricultural trade liberalization, have said that the green box should not be changed
because it is already satisfactory.

The
blue box

The blue box is an
exemption from the general rule that all subsidies linked to production must be reduced or
kept within defined minimal (de minimis) levels. It covers payments
directly linked to acreage or animal numbers, but under schemes which also limit
production by imposing production quotas or requiring farmers to set aside part of their
land. Countries using these subsidies say they distort trade less than alternative amber
box subsidies.

At the moment, the
blue box is a permanent provision of the agreement. Some countries want it scrapped
because the payments are only partly decoupled from production. Others say it is an
important tool for supporting and reforming agriculture, and for achieving certain non-trade objectives.

Export subsidies

Some
countries are proposing the total elimination of export subsidies. Others reject the idea.
In addition, some countries would like to examine the rules to prevent governments getting
around (circumventing) their commitments  including the use of state
trading enterprises and subsidized export credits.

Developing countries

Developing countries
reflect a range of interests in the debate on agriculture, and the distinctions are not
always clear.

Most members of the
Cairns Group  which favours much greater liberalization in agricultural trade 
are developing countries. But like most WTO members, the Cairns Group would also like to
see developing countries given special and differential treatment to take
account of their needs.

Some countries say WTO
arrangements should be more flexible so that developing countries can support and protect
their agricultural and rural development and ensure the livelihoods of their large
agrarian populations.

They argue, for
example, that subsidies and protection are needed to ensure food security, to support
small scale farming, to make up for a lack of capital, or to prevent the rural poor from
migrating into already over-congested cities.

At the same time, some
developing countries make a clear distinction between their needs and what they consider
to be the desire of much richer countries to spend large amounts subsidizing agriculture
at the expense of poorer countries.

Many developing
countries complain that their exports still face high tariffs and other barriers in
developed countries markets and that their attempts to develop processing industries
are hampered by tariff escalation (higher import duties on processed products compared to
raw materials). They want to see substantial cuts in these barriers.

WTO statistics show
that developing countries as a whole have seen a significant increase in agricultural
exports. Agricultural trade rose globally by nearly $100bn between 1993 and 1998. Of this,
developing countries exports rose by around $47bn  from $120bn to $167bn in
the period. Their share of world agricultural exports increased from 40.1% to 42.4%. But
within the group, some individual developing countries have seen their agricultural trade
balance worsen  their imports have risen faster than their exports.

Who can subsidize exports?25 WTO
members have export subsidy reduction commitments. Those without commitments cannot
subsidize agricultural exports at all. Some among the 25 have decided to greatly reduce
their subsidies or drop them completely:

Decision on net-food importing
developing countries

A number of developing
countries which depend on imports for their food supply are also concerned about possible
rises in world food prices as a result of reductions in richer countries subsidies.
Although they accepted that higher prices can benefit farmers and increase domestic
production, they feel that their concerns about food imports need to be addressed more
effectively.

The WTO agreements
include a Decision on the Possible Negative Effects of the Reform Programme on
Least-Developed and Net-Food Importing Developing Countries. As a result of this
decision the Food Aid Convention was recently renegotiated and concluded in July 1999 in
the International Grains Council. The WTO Committee on Agriculture also regularly reviews
actions within the framework of the decision, in such areas as technical and financial
assistance provided to least-developed and net-food importing countries to assist in
improving their agricultural productivity and infrastructure.

Non-trade concerns and
multifunctionality:
agriculture can serve many purposes

The Agriculture
Agreement includes provisions for important non-trade concerns such as food
security, the environment, structural adjustment (which can include rural development) and
so on.

Most countries accept
that agriculture is not only about producing food and fibre but also has other functions,
including these non-trade objectives  although some dislike the buzzword
multifunctionality. The question debated in the WTO is whether
"trade-distorting" subsidies, or subsidies outside the green box,
are needed in order to help agriculture perform its many roles.

Some countries say all
the objectives can and should be achieved more effectively through green box
subsidies which are targeted directly at these objectives. Examples include direct
payments to producers, structural adjustment assistance, environmental programmes, and
regional assistance programmes which do not stimulate agricultural production or affect
prices. These countries say the onus is on the proponents of non-trade concerns and
multifunctionality to show that the existing provisions, which were the
subject of lengthy negotiations in the Uruguay Round, are inadequate for dealing with
these concerns in targeted, non-trade distorting ways.

Other countries say
the non-trade concerns are closely linked to production. They believe subsidies based on,
or related to, production are needed for these purposes. For example, rice fields have to
be promoted in order to prevent soil erosion, they say. A number of countries have
produced studies to support their arguments, and these studies have also been debated.

Many exporting
developing countries say multifunctionality is a form of special and differential
treatment for rich countries. Several even argue that any economic activity 
industry, services and so on  is equally multifunctional, and therefore if the WTO
is to address this issue, it has to do so in all areas of the negotiations, not only
agriculture. Some others say agriculture is special.

The peace clause

Article 13
(due restraint) of the Agriculture Agreement protects countries using
subsidies which comply with the agreement from being challenged under other WTO
agreements. Without this "peace clause", countries would have greater freedom to
take action against each others subsidies, under the Subsidies and Countervailing
Measures Agreement and other provisions. The peace clause is due to expire at the end of
2003.

Some countries want it
extended so that they can enjoy some degree of legal security, ensuring that
they will not be challenged so long as they comply with their commitments under the
Agriculture Agreement.

Others want it to
lapse as part of their overall objective to see agriculture brought under general WTO
disciplines, although they might be prepared to consider an extension, depending on what
is agreed in other parts of the agriculture negotiation.

Fisheries and forestry

The Agriculture
Agreement does not include fishery and forestry products. Some WTO members would like to
see specific disciplines negotiated for these products and have tabled proposals for
Seattle.

In particular there
are proposals for dealing with fisheries subsidies (both for fishing fleets and for fish
farming) and their impact on fish stocks and the environment. The proposed rules and
disciplines for forestry products would include the promotion of resource conservation and
management, other environmental concerns, and disciplines on market access and export
restrictions on logs.

The proposals would
almost certainly not come under the Agriculture Agreement.

Article 20 and beyond

Article 20 of the
Agriculture Agreement says WTO members have to negotiate to continue the reform programme
for agriculture.

Members generally
accept that this should result in better market conditions, lower production distorting
subsidies and reductions in export subsidies. However, there is no agreement about the
depth of these reforms (how deep the cuts in subsidies and tariffs should go, and how far
the quotas should be widened) or on how issues like some non-trade concerns should be
addressed.

The forthcoming
negotiations will be difficult but they will also contribute to further liberalization of
agricultural trade. This will benefit those countries which can compete on quality and
price rather than on the size of their subsidies. This is particularly the case for many
developing countries whose economies depend on an increasingly diverse range of primary
and processed agricultural products.

Article 20 of the Agriculture
Agreement

Continuation of the Reform
Process

Recognizing that the
long-term objective of substantial progressive reductions in support and protection
resulting in fundamental reform is an ongoing process, Members agree that negotiations for
continuing the process will be initiated one year before the end of the implementation
period, taking into account:

(a) the experience to
that date from implementing the reduction commitments;

(b) the effects of the
reduction commitments on world trade in agriculture;

(c) non-trade
concerns, special and differential treatment to developing-country Members, and the
objective to establish a fair and market-oriented agricultural trading system, and the
other objectives and concerns mentioned in the preamble to this Agreement;

(d) and what further
commitments are necessary to achieve the above mentioned long-term objectives.